Archive - Jul 2013 - Story

The world supply of crude oil isn’t going to run out any time soon, and we will be producing oil for decades to come. However, what we won’t be doing is producing crude oil – petroleum – at the present rate of around 30 billion barrels per year. For a global civilization that is based almost entirely on a plentiful supply of cheap, crude oil, this is going to present some considerable challenges.

Earlier today, when we reported that median asking rents in the US had just hit an all time high, we had a thought: how long until the hedge funds that also double down as landlords decide to bypass the simple collection the rental cash flows, and instead collateralize the actual underlying "securities"? One look at the chart below - which compares the median asking "for sale" price in black and the median rent in red - shows why. The last time there was a great divergence (to the benefit of housing), Wall Street spawned an entire Residential Mortgage-Backed Securities industry where Paulson, Goldman willing sellers would package mortgages, often-times synthetically, slice them up in tranches of assorted riskiness, and sell them to willing idiots yield-starved buyers. As everyone knows, that particular securitization bubble ended with the bankruptcy of Lehman, the bailout of AIG and the near collapse of the financial system. As it turns out, the answer to our original question was "a few hours" because securitizations are back, baby, and this time they are scarier and riskier than ever.

For the 5th time in 5 days, equity markets dropped back below their May 2013 all-time highs only to be rapidly bid back above that magical level into the close. Stocks in general went nowhere fast with another heavy volume dip and light volume rip to close the day near VWAP. Nasdaq continues to outperform from the last FOMC meeting (up over 4%) even though Tech is unchanged since 6/19. Homebuilders are the drag (down 5.5% from the last FOMC). Treasuries ended the day unchanged (selling back from a 5bps yield compression across the US open after housing data disappointed). AUD continued its overnight weakness (as did GBP) but the USD managed only very modest gains on the day. Gold flatlined as the rest of the economic-commodities slipped lower (WTI at $103 with spread to Brent testing $4). Do not panic!! The Dow closed red for a second day in a row for the first time in six weeks!

While one can have sympathy for the over-levered, underwater homeowners that took free-money with both hands and feet as house prices surged in the mid-2000s (just like they are now) but the latest moves to 'save' people from themselves in the city of Richmond, CA is raising both market and constitutional concerns. As NYTimes reports, the city is the first to use eminent domain by the local government (in partnership with a 'friendly' mortgage provider) to seize homes, force investors to take a loss on the mortgages, re-issue a new 'lower' mortgage, and allow the homeowner back with positive equity (ready to lever-it-back-up into a new Harley). As Guggenheim notes, this is likely to hurt supply of new mortgages and as we noted previously (here and here), it seems clear that private-label MBS holders will not be happy, consumers hurt as mortgage costs would rise (this 'risk' has to be priced in), and taxpayers unhappy as this is yet another transfer payment scheme to bailout underwater loans.

The heart of any con is winning the trust of the mark, and the heart of counterfeiting is persuading the mark that a facsimile of value is real. What happens when trust in the counterfeiters is lost? What happens when the assets presented as zero-risk lose value? What happens when "the Fed has our back" doesn't stop the stock market from careening off the cliff of a global credit crisis, which is another term for a crisis of faith that the system is as stable and resilient as it is presented? Trust is a fragile creature. It is a most ephemeral yet powerful force. Once lost, it can never be fully regained; it can only be earned back, one step at a time. We are fast approaching the moment when the value of the counterfeit trust, the counterfeit assets and the counterfeit promises are revealed as fakes.

Today, the wealth redistributor par excellence came to us live from an Amazon warehouse in Chattanooga, TN where with dramatically rolled-up sleeves, Obama praised a vision of a full-time middle class to a fulfillment center gathering of racially diverse, part-time workers, thereby concluding "America's Transformation To A Part-Time Worker Society" first observed here in 2010.

Is there such a thing as a ‘safe’ fiat currency? The term itself is as intellectually disingenuous as terms like ‘fair tax’ or ‘government innovation’. But as we’ve been exploring recently why modern central banking is completely dysfunctional, it does beg the question – is any currency ‘safe’? Let’s look at the numbers for some data-driven analysis. But which is the safest major currency?

Amid the glory of an Amazon fulfillment center (better known in spoken English as "warehouse") in Chattanooga, President Obama will unveil another hour-long reprise of the same tired anecdotes, finger-pointing, blame everyone else, things are great but things are tough new deal plan for the middle class in America. We can't wait to see the select few chosen to represent this broad-swathe of the US citizenry and sit in praise of the leader.

Divining the impact of 'taper' expectations and growth expectations is difficult but one thing is clear - not all markets have reacted in the same way to the Taper/Un-Taper discussions since the last FOMC. However, there is one indication that concerns us greatly...

While Manning still faces other charges, the most serious - that of 'aiding the enemy' - is now off the table:

*US ARMY PFC BRADLEY MANNING ACQUITTED OF AIDING THE ENEMY: AP

*BRADLEY MANNING CONVICTED OF 5  ESPIONAGE COUNTS: AP

The 'aiding the enemy' charge would have carried a maximum life sentence in prison. Manning could still face 144 years in jail for the 19 lesser charges in the Wikileaks case. Full charge and punishment schedule below.

There was a time when Jamie Dimon liked everyone to believe that his JPMorgan had a "fortress balance sheet", that he was disgusted when the US government "forced" a bailout on it, and that no matter what the market threw its way it would be just fine, thanks. Then the London Whale came, saw, and promptly blew up the "fortress" lie. But while JPM's precarious balance sheet was no surprise to anyone (holding over $50 trillion in gross notional derivatives will make fragile fools of the best of us), what has become a bigger problem for Dimon is that slowly but surely JPM has not only become a bigger litigation magnet than Bank of America, but questions are now emerging if all of the firm's recent success wasn't merely due to crime. Crime of the kind that "nobody accept or denies guilt" of course - i.e., completely victimless. Except for all the fines and settlements. Here is a summary of JPM's recent exorbitant and seemingly endless fines.

Eurozone taxpayers and the IMF are left wondering what their bailout funds have been spent on in Greece. The Hellenic Financial Stability Fund (HFSF) has spent EUR38bn (or 75% of its total) bolstering the capital of Greece's four biggest banks (and winding down eight small lenders). The EUR50bn fund looks set to be drained further  - despite the banks comments that costs have been cut, funds raised, and assets sold - as non-performing loans continue to surge. About a quarter of all loans are non-performing and that share is likely to increase as the country's six-year recession, which has wiped out over a quarter of the economy, shows little sign of abating. Have no fear though, since stress tests will be carried out later this year to establish whether Greek banks have more capital needs. Of course the key question is - just where were these rescue funds diverted within the bank shells.

And so Bloomberg's initial foray into testing the limits of America's nanny financial capital is officially over. Moments ago Reuters reported that Mayor Mike's quest to limit what New Yorkers may or may not drink is officially over after his forced plan to ban large sugary drinks from restaurants and other eateries was halted and deemed an "illegal overreach of executive power," a state appeals court ruled on Tuesday, upholding a lower court decision in March that struck down the law. Wait, if illegal overreaching of executive power is, well, illegal, there are a few other people in position of power that America's court system may want to take a close look at. Alas it won't.

With GDP set to be revised (upwards we are sure) through the power of intangible accounting, the dismal reality of the Q2 GDP print is likely to get lost in the shuffle (especially given all the hope that a 'real' recovery is just around the corner). However, as comments regarding second quarter activity suggest, economic conditions decelerated from the first three months of the year. In fact, based on recent comments from key companies, a looming recession may be signaled by the GDP report this week. Of course, focusing on the bellwether stocks as an indication of reality will never do - instead we are treated to short-squeezed stocks-du-jour and manufactured EPS beats as evidence that "everything's great." It's not.

The American Homeownership Dream is officially dead. Long live the New Normal American Dream: Renting.